Acclime’s corporate snapshot – June 2023.
ASX/ASIC arm-wrestle continues
ASX has released public versions of the Special Report and the Ernst & Young Audit Report into the CHESS clearing and settlement system.
After ASX put the replacement of the CHESS system on hold in November last year, it was served with notices under the Corporations Act by ASIC, requiring it to produce the special report and have it externally audited. ASIC also required that ASX produce a public version of the report that took into consideration commercial confidentiality and cyber-security.
ASIC’s pursuit of accountability in relation to the CHESS replacement process continued into February this year when it delivered further notices. The regulator is now assessing further steps to ensure the ASX Group licensees comply with their facility licence obligations.
You can read the Special Report and the Audit Report via ASX’s website: www2.asx.com.au
Convertible debt securities under the microscope
ASX, meanwhile, is turning its attention to the conversion terms of convertible debt securities, using its most recent Compliance Update to remind entities that they must be able to demonstrate compliance with the listing rules, especially where conversion terms are complex, possibly dilutive, or otherwise unusual.
You can find Compliance Update No.5/23 on the Compliance Updates page at the ASX website, www2.asx.com.au.
The provision of legal advice can cover ordinary securities and preference notes, but where extra complexities arise in the terms, a formal application to ASX for in-principal advice becomes necessary. That application must set out a range of information about the security: the full requirements can be found in Guidance Note 17, available on the Listing Rules page at the ASX website, www2.asx.com.au.
Changes to laws for employee share incentive plans (ESIPS)
As of 1 October 2022, amendments to the Corporations Act affected employee securities incentive plans (ESIPs). From 1 March 2023, companies issuing securities under an ESIP must comply with the so-called New Plan. The new compliance elements include:
- Expanded Eligibility: an offer may be made to specified “primary participants” or their ‘related persons.’
- Caps now only apply to issues made for monetary consideration (being the cap set out in the company’s constitution, or if there is no such cap, 5%).
- Offers made for no monetary consideration do not have any specific disclosure requirements.
- There is no longer any requirement for the entity’s shares to have been quoted for three months.
- The existing relief in relation to the on-sale of shares within 12 months from their date of issue is now gone, so cleansing notices will be required on the issue of listed securities or each time convertible securities issued under an ESIP are exercised into listed securities.
Under the new legislation, for offers of awards with nil acquisition and exercise price, the offer document only needs to state that the new legislation is being relied upon.
It is time for companies to review plan rules, clean up any stray references to the old class order, and update their trust deed if certain provisions are not included. Companies need to consider whether they should adopt a New Plan at their next shareholder meeting.
ASIC explains its reportable situations regime
ASIC’s Regulatory Guidance 78: Breach reporting by AFS licensees and credit licensees (RG 78) has undergone an initial round of updates, with more on the horizon.
The updates aim to bolster the well-known Reportable Situations regime. ASIC acknowledged in 2022 that the regime had suffered teething problems since commencing operation the previous year. It promised a detailed remedial work and consultation program and has now released its updates.
These include advice about collating reportable situations into a single report and how to complete ASIC’s reportable situations form – a series of changes to the form came into effect on 5 May 2023.
Heating up: The move towards mandatory climate reporting
Making good on an election pledge, the Albanese government is moving towards mandating climate reporting for (initially) large listed companies and financial institutions.
The move has the backing of the Australian Institute of Company Directors (AICD), and its form will likely follow international precedents. Treasury has sought comment on the scope, assurance and liability concerns around such a regime, and the AICD has sought legal advice and contributed a submission focussed on the liability parameter.
Private law reform: Getting the balance right
The recent review of the Privacy Act has made 116 recommendations, and the government is currently considering whether and how to implement them.
The AICD, while acknowledging the need for reform, has urged caution in some areas. These include ensuring coordination across sectors, protecting small businesses from compliance burdens, minimising class action litigation risks and setting appropriate penalties.
In a statement, the AICD said, “In our view, further regulation or legal liability is not the answer to cyber threats. The government’s priority should be lifting national cyber resilience and fostering a partnership with the private sector.”
You can read more about the AICD’s position on cyber security here.